/raid1/www/Hosts/bankrupt/TCRLA_Public/240911.mbx
T R O U B L E D C O M P A N Y R E P O R T E R
L A T I N A M E R I C A
Wednesday, September 11, 2024, Vol. 25, No. 183
Headlines
A R G E N T I N A
ARGENTINA: La Rioja Launches Currency to Offset Milei's Therapy
ARGENTINA: Milei's Privatisation Plan for Football Clubs Blocked
GENERACION MEDITERRANEA: Moody's Affirms Caa3 CFR, Outlook Stable
B E R M U D A
JAZZ INVESTMENTS I: Fitch Puts 'BB' Rating to Sr. Unsecured Notes
B R A Z I L
BRAZIL: UBS Predicts Economic Trends -- Steady Now, Slower Ahead
PRUMO PARTICIPACOES: Fitch Affirms BB+ Rating on Sr. Secured Notes
WEWORK: HBR Realty Files Eviction Action Against Firm
D O M I N I C A N R E P U B L I C
DOMINICAN REPUBLIC: Notes Significant Rise in Tourist Card Refunds
J A M A I C A
JAMAICA: Economic Decline Projected in September Quarter
M E X I C O
BANCO BASE: Fitch Gives 'BB' LongTerm IDR, Outlook Stable
BANCO MONEX: Fitch Affirms 'BB+' LongTerm IDR, Outlook Stable
X X X X X X X X
LATAM: BID Invest Launches "Enlaces" to Promote Sustainable Finance
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A R G E N T I N A
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ARGENTINA: La Rioja Launches Currency to Offset Milei's Therapy
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Ignacio Olivera Doll at Bloomberg News reports that in La Rioja, a
sleepy, desolate province that form the country's northwestern
border with Chile, the financial toll of President Javier Milei's
shock economic therapy - a high-stakes bid to tame chronic
inflation - can best be observed.
When Milei slashed the monthly cash transfers from the federal
government to the provinces, La Rioja went broke, notes the report.
In February, it fell into default. And soon, the local economy had
sunk into a deep recession, according to Bloomberg News.
So the governor, an outspoken critic of Milei by the name of
Ricardo Quintela, dialled up a radical plan of his own, Bloomberg
News relays. He created the province's own currency, the chacho,
had sheets of it printed up and started doling it out in wads of
50,000 to all government employees. It was a little bonus payment,
Quintela said, to help people buy more of the essentials they'd
been skimping on, Bloomberg News says. Shop owners weren't
outright forced, but rather strongly encouraged, to accept chachos
just like they would pesos. One chacho equals one peso.
Bloomberg News relays that the province's workers bundled up in
heavy jackets and hurried to get into line to collect their new
currency. There was some grumbling as morning turned to afternoon
and the line crawled along at a glacial pace - "seven hours to
collect 50,000 filthy chachos," one groused - but the mood was
generally light, the report notes. They made small talk and sipped
mate. The payment they were due, equal to some US$40, was a lot of
money in a province where the average monthly salary is just
US$240, Bloomberg News discloses.
Chachos finally in hand, they wasted no time in spending them.
At Refinor, a gas station in the provincial capital city, business
jumped 10 percent that morning, Bloomberg News says. And over at
Noed-Fama, a little corner butcher shop, about half of all
customers paid with the new currency.
This illustrates the essence of what the whole chacho scheme
ultimately is: a way for a deadbeat province that has been cut off
from federal funds and locked out of debt markets at home and
abroad to obtain financing and keep spending, Bloomberg News says.
Press officials for the governor declined to comment on the rollout
of the currency.
Milei has said little about the chacho but indicated that, true to
his libertarian philosophy, he will neither try to ban it, as some
of his allies have urged, nor offer to swap it out for pesos,
Bloomberg News notes. "No way," he posted on X when Quintela first
began talking about the chacho, Bloomberg News relays.
About Argentina
Argentina is a country located mostly in the southern half of
South
America. Its capital is Buenos Aires. Javier Milei is the current
president of Argentina after winning the November 19, 2023 general
election. He succeeded Alberto Angel Fernandez in the position.
Argentina has the third largest economy in Latin America. The
country's economy is an upper middle-income economy for fiscal
year 2019, according to the World Bank. Historically, however, its
economic performance has been very uneven, with high economic
growth alternating with severe recessions, income maldistribution
and in the recent decades, increasing poverty.
The IMF's executive board completed on August 23, 2023, the fifth
and six reviews of Argentina's 30-month Extended Fund Facility
(EFF), and approved a US$7.5-billion disbursement to Argentina as
part of the larger program, which refinances payments Argentina
owes the institution from a previous bailout that failed to
stabilize the economy in 2018. Argentina would receive another IMF
disbursement in November of about US$2.75 billion pending another
staff-level agreement and board approval.
S&P Global Ratings, on Aug. 8, 2024, affirmed its 'CCC/C' foreign
and local currency sovereign credit ratings on Argentina. S&P also
affirmed its 'raB+' national scale rating on the country. The
outlook on the long-term ratings remains stable. S&P's 'CCC'
transfer and convertibility assessment for Argentina remains
unchanged.
S&P said the stable outlook on the long-term ratings balances the
risks posed by pronounced economic imbalances and other
uncertainties with recent progress in making fiscal adjustments,
reducing inflation, and undertaking structural reforms to address
long-standing microeconomic weaknesses that have contributed to
poor economic performance for many years.s that it
would likely consider to be distressed.
Fitch Ratings upgraded on June 13, 2023, Argentina's Long-Term
Foreign Currency (FC) Issuer Default Rating (IDR) to 'CC' from
'C'and affirmed the Long-Term Local Currency (LC) IDR at 'CCC-'.
Fitch typically does not assign Outlooks to sovereigns with a
rating of 'CCC+' or below.
The upgrade of the FC IDR reflects that Fitch no longer deems a
default-like process to have begun, as the authorities have not
signaled a clear intention to follow through with an intra-public
debt swap announced in March. The new 'CC' rating signals a
default
event of some sort appears probable in the coming years,
regardless
of the outcome of upcoming elections. The affirmation of the LC
IDR
at 'CCC-' follows the peso debt swap in June that Fitch did not
deem to be a "distressed debt exchange" (DDE).
Moody's Investors Service, in September 2022, affirmed Argentina's
Ca foreign-currency and local-currency long-term issuer and senior
unsecured ratings. The outlook remains stable. The decision to
affirm the Ca ratings balances Argentina's limited market access,
weak governance, and history of recurrent debt restructurings with
recent efforts to marshal fiscal and monetary measures to start
addressing underlying macroeconomic imbalances in the context of
the IMF program that was approved in 2022, according to Moody's.
DBRS, Inc. confirmed Argentina's Long-Term Foreign Currency Issuer
Rating at CCC and downgraded its Long-Term Local Currency Issuer
Rating to CCC from CCC (high) on March 3, 2023.
ARGENTINA: Milei's Privatisation Plan for Football Clubs Blocked
----------------------------------------------------------------
Buenos Aires Times reports a court agreed to issue an injunction
requested by the Argentine Football Association (AFA) against
President Javier Milei's decree requiring the governing body to
accept privately owned clubs into domestic leagues.
The ruling by the Federal Court of Mercedes suspends "the effects,
terms and scope [of the decree until a definite sentence,"
according to Buenos Aires Times.
The mid-August decree issued by Milei gave AFA a one-year timeline
for the Argentine Football Association (AFA) to amend its statutes
and accept private sporting corporations or limited companies (SAD,
in their Spanish acronym) in the professional league, the report
relays.
Under AFA's existing rules, only non-profit civil associations are
allowed to participate, the report discloses.
The suspended measure is a continuation of a mega-decree issued in
late 2023 which, among 300 other reforms, opened the door to
Argentine football clubs being able to convert themselves into
sporting corporations instead of non-profit associations, as
currently, the report notes.
The courts had already ruled last January against the club reform
programme yet the government resolved to advance with its
regulation, prompting AFA to request the injunction, the report
relays.
The entry of limited companies has long been yearned by President
Milei, who has declared himself on numerous occasions against the
"impoverishment model" of Argentine clubs, the report says.
"A technical question: if AFA is opposed to limited companies, why
permit [the players of] the national team to come from such
companies? Could it be that results are important and the limited
companies have the best [players]? No more impoverishing socialism
in football," expressed Milei in a post on the X social network on
July 12, the report notes.
The initiative has provoked negative reactions from the main clubs,
among them Boca Juniors, which posted on social media that the
club's authorities ratify the institution's "character of
non-profit association and the premise that the club belongs to its
people and members who make it greater every day," the report
relays.
AFA President Claudio 'Chiqui' Tapia has refused to consider the
possibility of privately-owned clubs in Argentina, the report
discloses.
"We know which is the model of football we want for our
institutions: non-profit civil associations," said Tapia at a
recent AFA event, the report says.
"If anyone thinks that football is going to be saved with the
sporting corporations, that is a total lie," remarked the AFA
chief, who has overseen one World Cup and two Copa America triumphs
for Argentina's national men's football during his tenure, the
report relays.
Argentina's clubs are non-profit civil associations, in which fans
pay membership dues that give them a right to vote for who they
want to run their institutions, which often provide services in
their local community and organise a host of other sport, the
report notes.
Milei's privatisation push is backed by several other leading
politicians, including former president Mauricio Macri, the
conservative PRO party leader who spent more than a decade leading
the giant Boca Juniors football club in Buenos Aires, the report
adds.
About Argentina
Argentina is a country located mostly in the southern half of South
America. Its capital is Buenos Aires. Javier Milei is the current
president of Argentina after winning the November 19, 2023 general
election. He succeeded Alberto Angel Fernandez in the position.
Argentina has the third largest economy in Latin America. The
country's economy is an upper middle-income economy for fiscal year
2019, according to the World Bank. Historically, however, its
economic performance has been very uneven, with high economic
growth alternating with severe recessions, income maldistribution
and in the recent decades, increasing poverty.
The IMF's executive board completed on August 23, 2023, the fifth
and six reviews of Argentina's 30-month Extended Fund Facility
(EFF), and approved a US$7.5-billion disbursement to Argentina as
part of the larger program, which refinances payments Argentina
owes the institution from a previous bailout that failed to
stabilize the economy in 2018. Argentina would receive another IMF
disbursement in November of about US$2.75 billion pending another
staff-level agreement and board approval.
S&P Global Ratings, on March 15, 2024, raised its local currency
sovereign credit ratings on Argentina to 'CCC/C' from 'SD/SD' and
its national scale rating to 'raB+' from 'SD'. S&P also raised its
long-term foreign currency sovereign credit rating to 'CCC' from
'CCC-' and affirmed its 'C' short-term foreign currency rating. The
outlook on the long-term ratings is stable. In addition, S&P
revised its transfer and convertibility assessment to 'CCC' from
'CCC-'.
S&P said the stable outlook on the long-term ratings balances the
risks posed by pronounced economic imbalances and policy
uncertainties with the favorable change in near-term debt service
obligations. S&P also expect no further debt exchanges that it
would likely consider to be distressed.
Fitch Ratings upgraded on June 13, 2023, Argentina's Long-Term
Foreign Currency (FC) Issuer Default Rating (IDR) to 'CC' from
'C'and affirmed the Long-Term Local Currency (LC) IDR at 'CCC-'.
Fitch typically does not assign Outlooks to sovereigns with a
rating of 'CCC+' or below.
The upgrade of the FC IDR reflects that Fitch no longer deems a
default-like process to have begun, as the authorities have not
signaled a clear intention to follow through with an intra-public
debt swap announced in March. The new 'CC' rating signals a default
event of some sort appears probable in the coming years, regardless
of the outcome of upcoming elections. The affirmation of the LC IDR
at 'CCC-' follows the peso debt swap in June that Fitch did not
deem to be a "distressed debt exchange" (DDE).
Moody's Investors Service, in September 2022, affirmed Argentina's
Ca foreign-currency and local-currency long-term issuer and senior
unsecured ratings. The outlook remains stable. The decision to
affirm the Ca ratings balances Argentina's limited market access,
weak governance, and history of recurrent debt restructurings with
recent efforts to marshal fiscal and monetary measures to start
addressing underlying macroeconomic imbalances in the context of
the IMF program that was approved in 2022, according to Moody's.
DBRS, Inc. confirmed Argentina's Long-Term Foreign Currency Issuer
Rating at CCC and downgraded its Long-Term Local Currency Issuer
Rating to CCC from CCC (high) on March 3, 2023.
GENERACION MEDITERRANEA: Moody's Affirms Caa3 CFR, Outlook Stable
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Moody's Ratings affirmed Generacion Mediterranea S.A's (Gemsa) Caa3
corporate family rating, following the company's debt exchange
transaction. The outlook is stable.
The affirmation considers that the company has completed an
exchange for its local issued notes, extending their maturities to
2027 and 2028, partially alleviating its liquidity pressures.
Nevertheless, its debt maturity profile continues to be
challenging, given that Gemsa still faces significant debt
maturities on its outstanding cross border debt, of over $100
million each year in 2025 and 2026. Although the exchange will not
entail nominal losses to investors, Moody's consider Gemsa's
current debt restructuring as a distressed exchange under Moody's
definition, given the extension of maturities to 2027-28.
RATINGS RATIONALE
On August 9, the company announced an exchange offer over most of
its outstanding local market notes, amounting to over $400 million
of principal with maturities between 2024 and 2026. The exchange
closed on August 28 and it was accepted by 81%, representing $325.8
million of the total eligible capital of $403.4 million
outstanding.
While the company has been able to extend the profile of its local
issued notes through the exchange, its liquidity position remains
tight because of weak cash generation until all its projects under
construction become operative. To this point, the company still
faces significant short term debt maturities on its cross border
debt, for which the management already announced it will seek to
perform an additional debt exchange in the following months. The
rating's affirmation is based in the high probability of another or
persistent default event as per Moody's definitions, while the
company needs to roll over short-term debt maturities, and Moody's
expectation that eventual losses to investors will remain in line
with the current Caa3 rating level.
The ratings affirmation factors the expectation of higher cash
generation in 2025, following the full-year incorporation of Peru's
operations and the completion of the company's expansion plan,
toward converting its Ezeiza (COD in April 24) and Maranzana power
plants into combined cycles and the co-generation project Arroyo
Seco. These projects will allow the company to almost double its
current EBITDA and improve cash generation accordingly. The credit
profile further incorporates the improved asset positioning and
extended contractual life, resulting from these investments. Gemsa
has already secured the financing to complete these projects and,
while it entailed a higher leverage and interest costs, the higher
cash flows from these expansions will allow for a gradual debt
reduction over the upcoming years as the ongoing expansion of its
installed capacity matures. As such, Gemsa's credit metrics are
currently weaker than those of its power generation peers in
Argentina. The ratings base case incorporates Moody's expectation
that Gemsa's leverage will start declining to around 6 times (debt
to EBITDA) once the projects under construction are completed in
2025.
Gemsa will continue to benefit from fixed-capacity payments from
its portfolio of assets that are mostly contracted under long-term
power purchase agreements (PPAs). Nevertheless, Gemsa's exposure to
CAMMESA, the agency that manages the wholesale electricity market
in Argentina, as its main off-taker will continue to constrain its
credit profile. Given that power prices remain subsidized, CAMMESA
continues depending on Government of Argentina (Ca stable)
transfers to make payments to power generators under its PPA's.
While in recent months subsidies have been reduced and CAMMESA's
contractual payments to power generators have normalized, is not
infrequent that payments are well delayed, which could add more
pressures to the Gemsa's weak liquidity position.
The stable rating outlook reflects Moody's expectation that Gemsa
will be able to complete its expansion without significant delays
or cost overruns while maintaining high availability of its
operational fleet. The stable outlook also incorporates the
company's continued ability to roll-over its debt maturities.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING
Given the company's exposure to CAMMESA, coupled with weak
liquidity and high leverage, a rating upgrade is unlikely. An
upgrade would require an upgrade of the sovereign rating, along
with improved liquidity and lower leverage, such that debt/EBITDA
remains lower than 4x and cash flow from operations pre-working
capital/debt is consistently above 15%.
Moody's could downgrade the rating if the company's expansion
suffers a significant delay or cost overruns, leading to higher
leverage for longer than expected, specifically, debt/EBITDA
remaining above 6x on a sustained basis.
Generacion Mediterranea S.A (Gemsa) is an operating-holding company
that owns and operates 1,604 megawatts (MW) +254 MW under
construction of power capacity, on its own and through its several
subsidiaries. It is expected that in January 2025 Gemsa will also
absorb and merge Albanesi Energia S.A.
The principal methodology used in this rating was Unregulated
Utilities and Unregulated Power Companies published in December
2023.
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B E R M U D A
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JAZZ INVESTMENTS I: Fitch Puts 'BB' Rating to Sr. Unsecured Notes
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Fitch Ratings has assigned a 'BB'/'RR4' senior unsecured debt
rating to Jazz Investments I Limited's offering of exchangeable
senior notes due 2030. The notes will be fully and unconditionally
guaranteed, on a senior unsecured basis by the company's parent,
Jazz Pharmaceuticals Public Company Limited (Jazz, Long-Term Issuer
Default Rating [IDR] BB).
Fitch expects a portion of the net proceeds of the offering will be
used to repay up to $350 million of Jazz's term loans and, if the
initial purchasers of the notes exercise their option to purchase
additional notes, Fitch expects Jazz to use the additional proceeds
for further prepayments of the term loans.
Key Rating Drivers
Innovative Biopharmaceutical Company: Jazz's multi-year history of
launching innovative products in the fields of neuroscience and
oncology positions it for solid growth and profitability. Fitch
believes Jazz's commercial success is the result of effective R&D
capabilities that should continue over the near to medium term with
its pipeline investments in neuroscience and oncology. Jazz has
demonstrated a disciplined and effective approach to capital
allocation that is enabling such growth while reducing its
financial leverage.
Diversification and Pipeline Opportunities: Jazz is exhibiting a
growing base of diversified product revenues; revenues from three
portfolios, including "sleep", Epidiolex and oncology continue to
show solid growth. In addition, Jazz is making significant progress
within its pipeline as evidenced by the number and breadth of
near-term catalysts.
Fitch has not factored any revenues from Jazz's pipeline into its
forecast, but believes the opportunities from the pipeline bode
well for continued internal sources of growth. Moreover, in light
of its organic growth, Jazz is less dependent on executing a very
large debt-financed transaction to reach its Vision 2025 revenue
target of $5.0 billion.
Effective Deleveraging: Fitch's estimate of Jazz's EBITDA leverage
as of YE 2023 and for TTM period ended June 30, 2024 is
approximately 3.5 to 3.6x, which compares with its recent peak in
2021 after the GW Pharmaceuticals acquisition of 4.7x. Jazz's
EBITDA leverage has fluctuated because of the use of debt to
finance acquisitions or investments in IPR&D that are charged to
earnings. Pro forma for the offering of new notes, Fitch would
expect EBITDA leverage to remain approximately the same.
Jazz's financial flexibility has improved materially since the GW
Pharmaceuticals acquisition as a result of the aforementioned
trends of growth and diversification of revenues and its payment of
debt. Those drivers provide greater debt capacity for Jazz to
absorb the effects of debt-funded corporate development activities
accompanied by Fitch's expectation of Jazz's commitment to reduce
debt to levels consistent with the 'BB' rating sensitivities.
Oxybate and Epidiolex Competition: Fitch anticipates that Xyrem and
Xywav, as well as Epidiolex, will face increased competition over
the near to medium term. However, Fitch also factors into its
forecast meaningful royalty revenue from authorized generics of
sodium oxybate. In addition, non-oxybate products intended for the
treatment of excessive daytime sleepiness or cataplexy in
narcolepsy, including new market entrants, even if not directly
competitive with Xyrem or Xywav, could have the effect of changing
treatment regimens and payor or formulary coverage of Xyrem or
Xywav in favor of other products.
Hence, Fitch's forecast for the oxybate products assumes a decline
of almost 10% in 2024 with an offset from authorized generics that
generates an overall flat revenue growth trend for 2024 and a
return to growth in 2025.
Litigation Profile: Jazz is involved in a wide range of legal
proceedings that deal with Xyrem antitrust matters, the GW
Pharmaceuticals acquisition, patent litigation, price fixing, and
regulatory actions. Such litigation is costly and is expected to
both increase and persist. It is unclear when or how any litigation
matters will be resolved and, therefore, Fitch has factored
material litigation expenses into its forecast by assuming a lower
adjusted operating margin (and therefore, EBITDA margin) compared
with Jazz's published guidance. However, Fitch has not factored any
adverse settlements into its forecast of EBITDA or cash flows, but
instead is treating the potential for a material adverse outcome as
event risk.
Derivation Summary
Jazz's 'BB' IDR reflects its leadership position in the sale and
development of products to address sleep and movement disorders and
its growing business in oncology, including hematologic
malignancies and solid tumors. In addition, the rating reflects
Jazz's significant cash flow generation and its expanding pipeline
of therapeutics.
The combination with GW Pharmaceuticals added additional leadership
in the sale of products to address epilepsy, increased Jazz's
scale, and diversified its revenue and cash flow sources. Those
strengths are primarily offset by competitive challenges to the
oxybate franchise, its leveraged growth strategy, and litigation
exposures.
Jazz's credit profile compares favorably with other
biopharmaceutical companies with comparable revenue. It has greater
revenue diversification and significantly fewer litigation claims
and lower expenses compared with other pharmaceutical companies
that were forced into restructurings/bankruptcies because of
excessive litigation. In addition, Jazz has lower financial
leverage and more growth momentum compared with Teva Pharmaceutical
Industries Limited (BB-/Positive).
Parent-Subsidiary Relationship: The IDRs are rated on a
consolidated basis per Fitch's Parent and Subsidiary Linkage Rating
Criteria using the weak parent/strong subsidiary approach, with
open access and control factors based on the intercompany
guarantees of secured debt and the entities operating as a single
enterprise with strong legal and operational ties.
Corporate Recovery Ratings and Instrument Ratings Criteria: Fitch's
Recovery Ratings (RR) for issuers rated 'BB+' to 'BB-' are based on
generic recovery assumptions. Fitch has treated Jazz's senior
secured debt as Category 1 first lien despite many of the borrowers
being outside the United States because of its belief that the
majority of the collateral value is in the United States given its
revenue generation and therefore has notched up such debt to
'BBB-', which is two notches above the Long-Term IDR.
The secured debt receives a RR of 'RR1', which implies a recovery
in the range of 91%-100%. Also, in accordance with the criteria,
ratings for the senior unsecured debt are capped at the IDR of 'BB'
with a RR of 'RR4', which implies a recovery in the 31%-50% range.
Hybrid Instruments: Fitch treats Jazz's exchangeable notes as 100%
debt in its ratio calculations. According to Fitch's Corporate
Hybrids Treatment and Notching Criteria, optional convertibles
(whether the option is with the issuer, instrument holder or both)
will be treated as debt in all cases, unless the instrument has
other features as described in the criteria report that are
conducive to equity credit. This is not the case for the two
exchangeable notes because they have stated maturities and require
interest payments with no deferral features.
Key Assumptions
- Organic revenue growth rate of approximately 4%-5% over the
2024-2027 forecast period and total growth of 8%, inclusive of
assumed acquisitions; organic growth driven primarily from
increased sales of Epidiolex, Xywav, Rylaze and Authorized
Generics;
- Adjusted gross margins greater than 90% and adjusted EBITDA
margins of approximately 40% over the forecast;
- Non-GAAP effective tax rate of approximately 15%-20%;
- Effective interest expense increases with the rise in SOFR and
ranges from 5%-6% over the forecast;
- Change in net working capital as a % of revenue ranges from
2.4%-4% over the forecast;
- Capex is approximately 1.0% to 1.5% of revenue over the
forecast;
- A large acquisition is factored into the forecast in 2024 that
helps Jazz reach its Vision 2025 revenue target; gross EBITDA
leverage peaks at approximately 4.1x, but returns to below 4.0x
within 12 months-24 months with the payment of debt;
- No common dividends are assumed;
- Share repurchases of $300 million to $600 million over the
forecast period.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
- Organic revenue growth from existing products of 4% to 5% over
the forecast period;
- Total EBITDA leverage sustained below 3.5x and CFO - capex/total
debt with equity credit greater than 10%.
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
- Loss of oxybate revenue without offsetting growth in other
products;
- A large debt-funded transaction or significant investments in
IPR&D that cause total EBITDA leverage to be sustained above 4.5x
and CFO - capex/total debt with equity credit to be less than 5%.
Liquidity and Debt Structure
Good, Steady Source of Liquidity: Jazz is expected to possess good
liquidity to support its operating activities, capex, product
acquisitions and in-licensing activities and debt service. Jazz's
primary sources of liquidity are expected to be CFO (assumed to be
at least $1.0 billion) and a $500 million revolving credit
facility. Absent material investment in new products or
in-licensing, business combinations, or share repurchases, cash
balances would be expected to build materially. The effective
interest rate is expected to remain high as a result of the
increase in Secured Overnight Financing Rate (SOFR) and is assumed
to range between 5%-6%, depending on assumed debt levels.
Manageable Long-Term Debt: Jazz has a modest level of required
principal payments compared with forecast FCF for the remainder of
fiscal years 2024 and fiscal 2025. As a result, Fitch believes Jazz
will have significant flexibility to continue to pay down its term
loan B rapidly if it chooses to do so. Fitch's EBITDA leverage
ratio would decline significantly because of forecasted growth in
EBITDA even without material debt repayment; any material new IPR&D
investments or leveraged acquisitions would reverse that path.
Issuer Profile
Jazz Pharmaceuticals Public Limited Company is a global
biopharmaceutical company that develops medicines for people with
serious diseases, often with limited or no therapeutic options. The
company has a diverse portfolio of marketed medicines and novel
product candidates, from early- to late-stage development,
primarily in neuroscience and oncology.
Summary of Financial Adjustments
Fitch adjusted EBITDA to add back stock-based compensation,
transaction and integration related expenses, and acquisition
accounting inventory fair value step-up, and to charge EBITDA with
finance lease costs.
ESG CONSIDERATIONS
Jazz Pharmaceuticals Public Limited Company has an ESG Relevance
Score of '4' for Exposure to Social Impacts due to pressure to
contain healthcare spending, a highly sensitive political
environment, and social pressure to contain costs or restrict
pricing, which has a negative impact on the credit profile, and is
relevant to the rating in conjunction with other factors.
The highest level of ESG credit relevance is a score of '3', unless
otherwise disclosed in this section. A score of '3' means ESG
issues are credit-neutral or have only a minimal credit impact on
the entity, either due to their nature or the way in which they are
being managed by the entity. Fitch's ESG Relevance Scores are not
inputs in the rating process; they are an observation on the
relevance and materiality of ESG factors in the rating decision.
Date of Relevant Committee
27 March 2024
MACROECONOMIC ASSUMPTIONS AND SECTOR FORECASTS
Fitch's latest quarterly Global Corporates Macro and Sector
Forecasts data file which aggregates key data points used in its
credit analysis. Fitch's macroeconomic forecasts, commodity price
assumptions, default rate forecasts, sector key performance
indicators and sector-level forecasts are among the data items
included.
Entity/Debt Rating Recovery
----------- ------ --------
Jazz Investments I Ltd.
senior unsecured LT BB New Rating RR4
===========
B R A Z I L
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BRAZIL: UBS Predicts Economic Trends -- Steady Now, Slower Ahead
----------------------------------------------------------------
Rio Times Online reports that Swiss investment bank UBS recently
released its economic forecasts for Brazil in 2024 and 2025. For
2024, they predict a growth of 2.8%, but they expect a slowdown to
1.5% in 2025.
Authored by UBS economists Fabio Ramos, Alexandre de Azara, and
Rodrigo Martins, the report identifies several challenges, the
report relays.
They cite the country's monetary policy and the commodities market
as potential hurdles, according to Rio Times Online. The
difference between the real and neutral interest rates is large and
might increase, the report notes.
They also note that commodity prices are not as beneficial as
before, due to a global slowdown, the report says.
In the second quarter of 2024, Brazil's GDP grew by 1.4%,
surpassing market forecasts but in line with UBS's expectations.
The bank believes such strong performance will not likely repeat in
later quarters, the report discloses.
The analysis also forecasts a cutback in fiscal stimulus soon,
attributing this to legal obligations and emergency spending from
the recent floods in Rio Grande do Sul, the report notes.
This reduction in fiscal input is a primary driver for the
anticipated economic slowdown in 2025, the report relays.
Market projections from the Central Bank's Focus Bulletin paint a
slightly rosier picture for this year and the next, predicting GDP
growths of 2.46% and 1.85%, respectively, according to the report.
These estimates, while more optimistic for 2025, still follow the
trend of moderated growth, the report relays.
UBS's report serves as a grounded perspective on the complex
factors that influence Brazil's economic trajectory, the report
discloses. It underscores the nation's need to prepare for less
favorable conditions, navigating through policy and market
challenges.
The coming years will test Brazil's economic resilience, making
adaptive strategies crucial for sustained growth, the report adds.
About Brazil
Brazil is the fifth largest country in the world and third largest
in the Americas. Luiz Inacio Lula da Silva won the 2022 Brazilian
general election. He was sworn in on January 1, 2023, as the 39th
president of Brazil, succeeding Jair Bolsonaro.
As reported in the TCR-LA on May 6, 2024, Moody's Ratings affirmed
the Government of Brazil's long-term issuer and senior
unsecured bond ratings at Ba2, senior unsecured shelf rating at
(P)Ba2 and changed the outlook to positive from stable. Moody's
assesses thatBrazil's real GDP growth prospects are more robust
than in the pre-pandemic years, supported by the implementation of
structural reforms over multiple administrations, as well as the
presence of institutional guardrails that reduce uncertainty
around future policy direction. The outlook change to positive is
underpinned by Moody's assessment that more robust growth combined
with continued, albeit gradual, progress towards fiscal
consolidation, may allow Brazil's debt burden to stabilize.
However, there are risks to the government's execution of
continued fiscal consolidation.
S&P Global Ratings raised on Dec. 19, 2023, its long-term global
scale ratings on Brazil to 'BB' from 'BB-'. The outlook on the
long-term ratings is stable. S&P affirmed Brazil's global scale
short-term ratings at 'B' and its national scale long-term rating
at 'brAAA'. S&P also raised the transfer and convertibility
assessment on the country to 'BBB-' from 'BB+'. S&P said, "The
stable outlook reflects our expectation that Brazil will maintain
a
strong external position, thanks to strong commodity output and
limited external financing needs. We also believe Brazil's
institutional framework can sustain stable and pragmatic
policymaking based on extensive checks and balances across the
executive, legislative, and judicial branches of government. We
expect a very gradual fiscal correction but anticipate fiscal
deficits will remain large."
Fitch Ratings affirmed on Dec. 15, 2023, Brazil's
Long-TermForeign-Currency Issuer Default Rating (IDR) at 'BB' with
a StableOutlook. Fitch said Brazil's ratings are supported by its
large and diverse economy, high per-capita income, and deep
domestic markets and a large cash cushion that support the
sovereign's financing flexibility and its high local-currency debt
share. Strong external finances support resilience to shocks,
underpinned by a flexible exchange rate, robust international
reserves and a sovereign net external creditor position. The
ratings are constrained by weak economic growth potential,
relatively low governance scores, high and rising government
debt/GDP, and budgetary rigidities. A new fiscal framework
introduced this year aims to anchor a gradual consolidation process
and address these fiscal weaknesses, but its effectiveness is
increasingly unclear.
DBRS Inc., on August 15, 2023, upgraded Brazil's Long-TermForeign
and Local Currency - Issuer Ratings to BB from BB (low).At the same
time, DBRS Morningstar confirmed Brazil'sShort-term Foreign and
Local Currency - Issuer Ratings at R-4.The trend on all ratings is
Stable (March 2018).
PRUMO PARTICIPACOES: Fitch Affirms BB+ Rating on Sr. Secured Notes
------------------------------------------------------------------
Fitch Ratings has affirmed the 'BB+' rating of the fixed-rate
USD350 million senior secured notes issued by Prumo Participacoes e
Investimentos S.A. (Prumopar). The Rating Outlook is Stable.
RATING RATIONALE
The rating reflects Prumopar's stable cash flow, derived from
distributions from Ferroport Logistica Comercial Exportadora S.A
(Ferroport). Ferroport benefits from a long-term take-or-pay (ToP)
agreement with a creditworthy counterparty and serves as a
strategic asset for Anglo American plc, functioning as the sole
export terminal for iron ore produced by its Brazilian subsidiary's
mines in Minas Gerais state. Despite revenues and debt service are
denominated in U.S. dollars (USD), revenues are collected in
Brazilian Reais (BRL) and operational expenses are also paid in
BRL, exposing the transaction to the risk of BRL appreciation and
transfer and convertibility.
The notes carry a fixed rate and feature a balloon payment at
maturity in 2031. In Fitch's scenarios, the refinancing risk is
mitigated by a cash sweep mechanism that fully amortizes the debt,
as well as an eight-year ToP tail. Under the rating case, the
minimum Project Life Coverage Ratio (PLCR) is projected to be 1.8x
in 2024. Although the metrics are consistent with a higher rating,
the rating is constrained by Brazil's country ceiling due to
exposure to transfer and convertibility risk.
KEY RATING DRIVERS
Revenue Risk - Volume - Midrange
Dedicated Terminal: Ferroport has operated since 2014 and benefits
from a long-term ToP agreement with Anglo American Minerio de Ferro
Brasil S.A. (AAMFB), subsidiary of Anglo American plc (BBB+/Stable)
until 2039. It is a small port of call, built to suit Anglo's
Minas-Rio iron-ore project, handling a specialized type of cargo.
The port's inbound market access is highly dependent on the slurry
pipeline that connects the mine to the port.
Revenue Risk - Price - Stronger
Long Term Take-or-Pay Agreement: The ToP agreement stipulates
annual tariff adjustments that track two-thirds of U.S. inflation,
as measured by the Producer Price Index (PPI) for Industrial
Commodities. These adjustments have been implemented in a timely
manner since the port began operations. While revenues and debt are
denominated in U.S. dollars (USD), operational costs and expenses
are denominated in Brazilian Reais (BRL), exposing the transaction
to the risk of Brazilian Real appreciation. This appreciation
scenario could reduce EBITDA margins due to higher USD-equivalent
operational costs and expenses. Additionally, Ferroport is entitled
to collect port access fees based on the number of vessels
berthing, oil transshipment volume, and berthing time.
Infrastructure Dev. & Renewal - Midrange
Adequate Infrastructure: Ferroport's facilities are modern, and
management expects key equipment to have long useful lives, with no
replacement requirements anticipated throughout the life of the
transaction. Planned investments are primarily focused on channel
dredging, increasing stacking capacity, and conducting maintenance
work to preserve operational efficiency and ensure environmental
compliance.
The ToP agreement includes provisions for potential expansion,
allowing Ferroport the option to agree to expand. If Ferroport opts
for expansion, the contract specifies an additional tariff for the
incremental volume, calculated to assure an Internal Rate of Return
(IRR) of 15%. Alternatively, AAMFB has the option to undertake the
required capital expenditure (capex) itself. However, according to
the transaction documents, any capex exceeding USD 20 million
requires bondholders' approval.
Debt Structure - 1 - Midrange
Refinance Risk Mitigated by Cash Sweep: The debt carries a fixed
interest rate and includes a balloon payment of up to 55.1% (USD
177 million) in 2031. The debt structure also features a target
amortization schedule designed to fully amortize the debt within 12
years through a cash sweep mechanism. Additionally, the debt
structure includes a six-month offshore Debt Service Reserve
Account (DSRA) and lock-up provisions. These provisions require
compliance with the target debt balance, among other conditions,
for Prumopar to be permitted to distribute dividends.
Financial Profile
In Fitch's rating case, Prumopar is projected to fully repay the
debt at maturity. Refinancing risk is further mitigated by a PLCR,
which considers the cash flows available for debt service until the
end of the ToP agreement. Under the rating case, the minimum PLCR
is projected to be 1.8x in 2024, and the Net Debt-to-Cash Flow
Available for Debt Service (CFADS) peak is expected to be 4.2x in
2024. Fitch views both ratios as comfortable given the eight-year
ToP tail.
Prumopar's metrics align with higher ratings according to Fitch's
Transportation Criteria; however, its rating is constrained by
Brazil's country ceiling, as the notes are denominated in USD while
revenues are collected in local currency, therefore subject to
transfer and convertibility risk.
PEER GROUP
Prumopar's closest peer are North Queensland Export Terminal Pty
Ltd (NQXT, senior secured notes; BB+/Stable). Both are
single-purpose mineral export terminals, comprise medium- to
long-term ToP contracts and present refinance risk. NQXT
significantly reduced its leverage after completing its refinancing
activities in 2024. Under Fitch's rating case, nebt debt/EBITDA
peak is 3.5x in 2025 and falls to 2.4 by 2029. However, its rating
remains constrained by uncertainty surrounding NQXT's debt
refinancing in the near term.
Another comparable peer is Mersin Uluslararası Liman
İşletmeciliği A.Ş. (Mersin, senior unsecured debt B+/Positive).
Mersin is Turkiye's largest export-import port and handles the
highest volume of containerized throughput in the country. Unlike
Prumopar, Mersin's volume mix is diversified but volatile. Similar
to Prumopar, Mersin has a single-bullet debt structure, but its
refinancing risk is largely mitigated by a moderate leverage ratio
of 2.0x, measured by net debt/EBITDA. Mersin's rating is also
capped by Turkiye's Country Ceiling of 'B+' and is aligned with the
sovereign rating due to the port's linkages to the country's
economic and regulatory environment.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
- Operational disruption negatively impacting the cash flows and
leading minimum PLCR to be below 1.3x;
- A negative rating action on Brazil's Sovereign Rating.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
- A strengthening of the credit profile of the Brazilian sovereign,
particularly the risk of imposing controls on the transfer of
foreign currency;
- Achievement of the target amortization schedule in a sustained
basis;
- Favorable track record of operations without disruption.
SECURITY
Prumopar is a wholly owned subsidiary of Prumo Logistica S.A. that
holds a 50% share of Ferroport, a joint venture between Prumopar
and Anglo American Investimentos Minerio de Ferro Ltda., a
subsidiary of Anglo American plc. Ferroport is the exclusive export
terminal for iron ore produced by Anglo's Minas-Rio project located
in Minas Gerais.
Ferroport is the owner of an area of 300 hectares in the Acu Port,
where iron ore is processed, handled and stored. The facilities
include an offshore structure comprising an access bridge, access
canal, breakwater and two berths for iron ore loading. Ferroport
benefits from a 25-year ToP with AAMFB, until 2039, for 26.6
million wet metric tons per year.
Ferroport was also responsible for the construction of the T1 port
terminal. It signed a Port Access Agreement with the shareholders,
also valid until 2039, which establishes that Ferroport is
responsible for the maintenance of T1 offshore infrastructure,
including the dredging of access channel and breakwater, and will
charge port fees based on the number of vessels berthing, oil
transhipment volume and berthing time.
Ferroport is the last line in the logistics chain and an integral
part of Anglo's Minas-Rio iron-ore project, which comprises 5.3
billion tons of mineral resources. The Minas-Rio project is located
in the States of Minas Gerais and Rio de Janeiro. It is 100% owned
by Anglo American plc, and it is composed of integrated systems of
open pit mines, a beneficiation plant, a 529 km slurry pipeline and
lastly, Ferroport.
ESG Considerations
The highest level of ESG credit relevance is a score of '3', unless
otherwise disclosed in this section. A score of '3' means ESG
issues are credit-neutral or have only a minimal credit impact on
the entity, either due to their nature or the way in which they are
being managed by the entity. Fitch's ESG Relevance Scores are not
inputs in the rating process; they are an observation on the
relevance and materiality of ESG factors in the rating decision.
Entity/Debt Rating Prior
----------- ------ -----
Prumo Participacoes e
Investimentos S/A
Prumo Participacoes e
Investimentos S/A/
Dividends &
Intercompany Loan –
First Lien/1 LT LT BB+ Affirmed BB+
WEWORK: HBR Realty Files Eviction Action Against Firm
-----------------------------------------------------
Reuters reports that Brazilian real estate firm HBR Realty said it
has filed an eviction action against WeWork due to lack of payment,
although the flexible workspace provider denied knowing about such
a notice.
The eviction action followed a "breach of the lease agreement"
signed between WeWork and SPE HBR1, a unit of HBR, for the rental
of the HBR Corporate Faria Lima building in Sao Paulo, HBR said in
a securities filing, according to the report.
HBR did not detail how much WeWork owed it but said it had sent
notices to the company requesting immediate payment of overdue
rent, the report notes.
"Negotiations are already resulting in agreements with our
landlords and we remain committed to providing the excellent
service our members expect," Reuters quoted WeWork as saying.
Brazilian media reported in July that WeWork hired law firm Alvarez
& Marsal to help restructure its business in Brazil, after the
U.S.-based firm received approval for a Chapter 11 bankruptcy plan
in May, recalls Reuters.
===================================
D O M I N I C A N R E P U B L I C
===================================
DOMINICAN REPUBLIC: Notes Significant Rise in Tourist Card Refunds
------------------------------------------------------------------
Dominican Today reports that despite the lack of an automatic
discount mechanism for the $10 tourist card for Dominicans buying
airline tickets, refunds for this fee have significantly increased
in recent years.
The General Directorate of Internal Revenue (DGII) reports that
from 2020 to mid-August 2024, 37,607 refund requests were approved,
totaling $376,050. Last year alone, $118,940 was refunded, with
$63,220 already issued by June of this year, according to Dominican
Today.
This rise indicates growing awareness among travelers about their
right to request a refund, the report notes.
However, not all requests are approved; 10,919 have been rejected
during this period, the report relays. The Civil Aviation Board
(JAC) issued Resolution 217-2022, granting airlines time to update
their systems to remove the tourist card fee for Dominicans and
visa holders, the report notes. Arajet is the only airline that
has fully implemented this change, the report discloses.
Omar Chain, president of the Dominican Association of Airlines
(ADLA), noted that the JAC has repeatedly extended the deadline due
to a legal challenge from 11 airlines arguing that the required
system changes are costly and complex, the report says.
Refund requests are commonly rejected for several reasons:
-- Ineligible Tickets: The tourist card fee is only applicable to
tickets purchased abroad. Tickets bought within the Dominican
Republic or for transit passengers do not incur the fee and are
not eligible for refunds.
-- Missed Deadlines: Refunds can be requested from the ticket
purchase date up to 30 business days after entering the
Dominican Republic.
-- Incomplete Documentation: Refund requests must include the
airline ticket, the applicant's passport, and proof of
exemption (e.g., residency, visa, or diplomatic status).
-- Missing or incorrect documents will result in rejection.
About Dominican Republic
The Dominican Republic is a Caribbean nation that shares the island
of Hispaniola with Haiti to the west. Capital city Santo Domingo
has Spanish landmarks like the Gothic Catedral Primada de America
dating back 5 centuries in its Zona Colonial district. Luis Rodolfo
Abinader Corona is the current president of the nation.
TCR-LA reported in April 2019 that Juan Del Rosario of the UASD
Economic Faculty cited a current economic slowdown for the
Dominican Republic and cautioned that if the trend continues,
growth would reach only 4% by 2023. Mr. Del Rosario said that if
that happens, "we'll face difficulties in meeting international
commitments."
An ongoing concern in the Dominican Republic is the inability of
participants in the electricity sector to establish financial
viability for the system.
On December 4, 2023, the TCR-LA reported that Fitch Ratings has
affirmed Dominican Republic's Long-Term Foreign-Currency Issuer
Default Rating (IDR) at 'BB-' and revised the Outlook to Positive
from Stable. Fitch says the Positive Outlook reflects a trend
improvement in governance, and robust growth prospects that should
lead to continued gains in per capita income. According to Fitch,
growth has decelerated in 2023, but it expects Dominican Republic
to recover to high levels during 2024-2025. External liquidity
metrics have improved in recent years, and foreign currency share
of government debt is on a downward path.
In August 2023, Moody's Investors Service changed the outlook on
the Government of Dominican Republic's ratings to positive from
stable and affirmed the local and foreign-currency long-term issuer
and senior unsecured ratings at Ba3. Moody's said the key drivers
for the outlook change to positive are: (i) sustained high growth
rates have enhanced the scale and wealth levels of the economy; and
(ii) a material decline in the government debt burden coupled with
improved fiscal policy effectiveness will support medium-term debt
sustainability.
The affirmation of the Ba3 ratings balances the Dominican
Republic's strong economic growth dynamics and relatively contained
susceptibility to event risks, with a comparatively weaker fiscal
position, reflecting long-standing credit challenges which include:
(i) a shallow revenue base compared to peers, (ii) weak debt
affordability metrics, and (iii) high exposure to foreign currency
borrowing.
S&P Global Ratings, in December 2022, raised its long-term foreign
and local currency sovereign credit ratings on the Dominican
Republic to 'BB' from 'BB-'. The outlook on the long-term ratings
is stable. S&P affirmed its 'B' short-term sovereign credit
ratings. S&P also revised its transfer and convertibility (T&C)
assessment to 'BBB-' from 'BB+'. The stable outlook reflects S&P's
expectation of continued favorable GDP growth and policy continuity
over the next 12-18 months that will likely stabilize the
government's debt burden.
In February 2023, S&P said its BB ratings reflect the country's
fast-growing and resilient economy. It also incorporates the
country's historical political and social challenges in passing
structural reforms to contain fiscal deficits, despite recent
improvements in the electricity sector. The ratings are constrained
by relatively high debt, a hefty interest burden, and limited
monetary policy flexibility.
=============
J A M A I C A
=============
JAMAICA: Economic Decline Projected in September Quarter
--------------------------------------------------------
RJR News reports that Jamaica's economy could see a decline in the
current July to September quarter.
The Planning Institute of Jamaica (PIOJ) says this is as a result
of a slowdown in various sectors, due to the passage of Hurricane
Beryl, according to RJR News.
PIOJ Director General Dr. Wayne Henry says GDP is expected to
contract within the range of -0.1 per cent, to -1 per cent, the
report notes.
"This projection is further supported by preliminary data received
for July 2024, which indicate downturns in hotels and restaurants
with provisional data reflecting a decline of 7.7 per cent in
airport arrivals, electricity and water supply, reflecting
decreases in both electricity and water consumption. For the month
of July 2024, alumina production fell by 23.4 per cent and crude
bauxite production declined by 7.6 per cent," the report relays.
For fiscal year 2024-25, the PIOJ's fiscal year projection is for
GDP change within the range of -1 per cent to 1 per cent, the
report discloses.
Dr. Henry said there are a number of downside risks for the short
term, largely associated with the adverse impact of Hurricane Beryl
on production activity, the report says.
"The performance of the mining and quarrying industry was adversely
affected by Hurricane Beryl, as a port at Rocky Point was damaged,
causing the diversion of alumina exports to an alternative port.
It is anticipated that the electricity and water supply industry
will record significant damage and loss as a result of the
destruction to infrastructure assets," he noted, the report relays.
The hotels and restaurants industry was also impacted by the
cancellation of flights and diversion of visitors to alternative
destinations due to the passage of the hurricane, the report notes.
Dr. Henry said a detailed assessment is still being undertaken as a
majority of the recovery work has just been completed, the report
says.
He added that a lower rate of tourist arrivals is expected for the
quarter, the report adds.
About Jamaica
Jamaica is an island country situated in the Caribbean Sea.
Jamaica is an upper-middle income country with an economy heavily
dependent on tourism. Other major sectors of the Jamaican economy
include agriculture, mining, manufacturing, petroleum refining,
financial and insurance services.
In October 2023, Moody's upgraded the Government of Jamaica's
long-term issuer and senior unsecured ratings to B1 from B2, and
senior unsecured shelf rating to (P)B1 from (P)B2. The outlook has
been changed to positive from stable. The upgrade of Jamaica's
rating to B1 reflects the government's sustained commitment to
fiscal consolidation and debt reduction. The positive outlook
reflects Moody's assessment that a continuation of the favorable
fiscal trajectory will further increase Jamaica's credit
resilience.
S&P Global Ratings raised on September 13, 2023, its long-term
foreign and local currency sovereign credit ratings on Jamaica to
'BB-' from 'B+', and affirmed its short-term foreign and local
currency sovereign credit ratings at 'B'. The stable outlook
reflects S&P's expectation that the government will remain
committed to prudent fiscal policies and reducing debt, as well as
supportive economic policies including a flexible exchange rate
regime and effective monetary policy.
In March 2022, Fitch Ratings affirmed Jamaica's Long-Term Foreign
Currency Issuer Default Rating (IDR) at 'B+'. The Rating Outlook is
Stable.
===========
M E X I C O
===========
BANCO BASE: Fitch Gives 'BB' LongTerm IDR, Outlook Stable
---------------------------------------------------------
Fitch Ratings has published Banco Base, S.A., Institucion de Banca
Multiple, Grupo Financiero Base (Base) 'BB' Long-Term Foreign and
Local Currency Issuer Default Ratings (IDRs), 'B' Short-Term
Foreign and Local Currency IDRs and a 'bb' Viability Rating (VR).
In addition, Fitch has published Base's 'no support' ('ns')
Government Support Rating (GSR). The Rating Outlook for the
Long-Term IDRs is Stable.
At the same time, Fitch upgraded the Long- and Short-Term National
Scale ratings of Base and Casa de Bolsa Base, S.A. de C.V., Grupo
Financiero Base (CB Base) to 'A+(mex)' and 'F1+(mex)',
respectively, from 'A(mex)' and 'F1(mex)'. The Rating Outlook for
the Long-Term Ratings is Stable.
Fitch upgraded the National Scale Ratings of Base as a result of
growing total operating income (TOI) that has translated into sound
profitability and capitalization ratios. The bank has retained most
of its earnings from past years. Coupled with moderate growth, this
has strengthened its Common Equity Tier 1 (CET1) to Risk weighted
Asset (RWA) metric above 20%.
The upgrade also reflects Fitch's expectation that Base's financial
profile will be resilient to potential risks in the operating
environment. This resilience stems from its business model, which
focuses on foreign exchange (FX) trading for customers and
complementary financial services that thrive during periods of
market volatility and uncertainty. Additionally, Base has lower
credit risk exposures compared to traditional commercial banks.
Key Rating Drivers
FX Market Recognized Franchise: Base's IDRs are driven by its 'bb'
VR and reflect the bank's successful strategy focused on its core
business of FX trading and related services to corporates and
enterprises. This translates into growing revenues across the cycle
that have strengthened its financial profile. Base's TOI grew 24.6%
y-o-y as of 1H24 and its four-year (2023-2020) average is USD203.6
million. This aligns with mid-sized commercial banks rated by Fitch
but is below its direct peers in FX market trading.
Fitch's business profile assessment for Base is 'bb' despite its
less-diversified business model. This is higher than the implied
score of 'b' due to the bank's good market position in the FX
market. Its position offsets its modest market share, which is less
than 1% of the total assets, loans and deposits in the Mexican
banking industry.
Riskier Underwriting Standards: Fitch assigned a 'bb-' risk profile
score to Base to reflect its business model's high exposure to
market conditions and its less prudent underwriting standards for
lending compared to issuers in the same rating category. Base's
lending practices exhibit concentrations per region, sector and
debtor in relation to its loan portfolio. They are also commonly
focused on mid-tier regional enterprises and have weaker guarantees
schemes compared to larger commercial banks. This demonstrates the
bank's riskier underwriting standards.
Good Capacity to Absorb Credit Risk: Fitch's score of 'bb' for
Base's asset quality is based on the bank's balance sheet
structure, where 70.8% of total assets are comprised by liquid
securities with risk tied to Mexico's sovereign credit risk. Credit
risk from the loan portfolio has been absorbed by the bank's good
capacity to generate earnings.
Base's recurring charge-offs have improved the stage 3 loans to
gross loans ratio. It was 2.1% at 1H24, the best metric since 2020.
However, the adjusted impaired loans ratio published by the local
regulator, which includes charge-offs was 5%. This is the highest
metric since 2020 and above the 4.4% of the Mexican banking
industry. Fitch expects Base's credit costs to remain moderate as
lending will continue to be as a complementary product.
High Profitability: Base's profitability metrics reflect its highly
transactional and countercyclical business model. The USD/MXN
exchange rate was relatively stable in the latest 12 months.
However, Base's earnings increased due to higher FX volumes
trading, leading to higher net gains on trading. Higher net
interest income, lower loan impairment charges and non-interest
expenses also underpinned the profitability metrics. The operating
profit to RWA ratio was 8.7% at 1H24, the highest level since 2020.
Fitch has assigned Base an Earnings and Profitability score of
'bb+' and believes high profitability will be maintained in the
short- to medium-term due to the expected volatility in the
exchange rate and moderate loan portfolio growth.
Sound Capital Metrics: Base's capitalization continues to
strengthen and supports its 'bb+' score for Capitalization and
Leverage. Current levels could decrease as the bank resumes
moderate credit growth, translating into larger RWAs and increase
its dividend pay-out ratio. However, Fitch expects sound capital
metrics with loss absorption capacity to persist. The bank's
capitalization was supported through high earnings generation
mostly retained and lower capital consumption due to loan portfolio
contraction. The CET1 Capital Ratio was 20.8% as of June 2024, the
highest metric since 2020. Base's CET1 capital ratio compares
favorably with its closest peers and commercial mid-sized banks
rated by Fitch.
Strong Funding and Liquidity Profile: Base's funding and liquidity
profile remains strong. Its customer deposits base comfortably
covers its loan portfolio and has a highly liquid balance sheet
with several funding sources. Fitch expects this factor to remain
stable, underpinned by the bank's business model, which supports
the Funding and Liquidity score of 'bb+'. The gross loans to
customer deposits ratio was 37.6% as of 1H24, the best level since
2020, which compares favorably with its closest peers and most of
Mexican commercial banks. Base's strong liquidity profile is
reflected in its liquid assets. They represented more than 80% of
its total assets at 1H24 and are translated into high and in
consistently compliance regulatory metrics as the liquidity
coverage ratio and net stable funding ratio.
Rating Sensitivities
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
- A significant decrease in TOI level and Fitch's appreciation of a
reduced market position in the FX trading market; coupled with a
significant deterioration of the bank's financial profile,
specifically an operating profit to RWAs ratio consistently below
2.5% and a CET1 capital ratio below 18%.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
- A significant increase of TOI levels over the medium term while
maintaining its strong market position in the FX trading market and
high levels of profitability and capitalization; coupled with
Fitch's appreciation of strengthened and proven underwriting
standards.
OTHER DEBT AND ISSUER RATINGS: KEY RATING DRIVERS
Base's GSR: Fitch assesses Base's GSR at 'ns' because there is no
reasonable assumption that support from authorities will be
available. The bank is not a domestic systemically important bank
(D-SIB), and it has low market share and interconnectedness within
the financial system compared to major Mexican banks. As of June
2024, Base's deposits represented only 0.4% of the Mexican banking
system's deposits.
OTHER DEBT AND ISSUER RATINGS: RATING SENSITIVITIES
- There is no downside potential for the GSR; however, upside
potential is limited and could only occur over time with a material
increase in the bank's systemic importance.
SUBSIDIARIES & AFFILIATES: KEY RATING DRIVERS
Support-Driven Base CB's Ratings: CB Base's ratings are aligned
with Base's ratings. Fitch's assessment reflects the legal
obligation of Grupo Financiero Base, S.A. de C.V. (GF Base) to
support its subsidiaries. Any support would come from the bank as
the most important of the group's operating subsidiaries by
revenues and size. Fitch also factor in the importance of the
securities firm for the group's business strategy and operations.
SUBSIDIARIES AND AFFILIATES: RATING SENSITIVITIES
- Base CB's national ratings would mirror any changes in Base's
national ratings. Additionally, a change in Fitch's perception of
the entity's lower strategic importance for the bank and the
financial group could lead to a negative rating action/downgrade.
VR ADJUSTMENTS
The Business Profile Score of 'bb' has been assigned above the 'b'
category implied score due to the following adjustment reason:
Market Position (positive).
Summary of Financial Adjustments
Fitch classified pre-paid expenses and other deferred assets as
intangibles and deducted them from total equity due to their low
loss absorption capacity under stress.
Sources of Information
The principal sources of information used in the analysis are
described in the Applicable Criteria.
Financial figures are in accordance to the Comision Nacional
Bancaria y de Valores criteria. Figures for 1H24, 2023 and 2022
include recent accounting changes in the process to converge to
International Financial Reporting Standards. Prior years did not
include these changes, and Fitch believes they are not directly
comparable.
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF
RATING
Public Ratings with Credit Linkage to other ratings
Base CB's ratings and Outlook are aligned with those of Base due to
GF Base's legal obligation to provide support to its subsidiaries.
ESG Considerations
The highest level of ESG credit relevance is a score of '3', unless
otherwise disclosed in this section. A score of '3' means ESG
issues are credit-neutral or have only a minimal credit impact on
the entity, either due to their nature or the way in which they are
being managed by the entity. Fitch's ESG Relevance Scores are not
inputs in the rating process; they are an observation on the
relevance and materiality of ESG factors in the rating decision.
Entity/Debt Rating Prior
----------- ------ -----
Banco BASE, S. A.,
Institucion de
Banca Multiple,
Grupo Financiero BASE LT IDR BB Publish
ST IDR B Publish
LC LT IDR BB Publish
LC ST IDR B Publish
Natl LT A+(mex) Upgrade A(mex)
Natl ST F1+(mex)Upgrade F1(mex)
Viability bb Publish
Government Support ns Publish
Casa de Bolsa Base,
S. A. de C. V.,
Grupo Financiero Base Natl LT A+(mex) Upgrade A(mex)
Natl ST F1+(mex)Upgrade F1(mex)
BANCO MONEX: Fitch Affirms 'BB+' LongTerm IDR, Outlook Stable
-------------------------------------------------------------
Fitch Ratings has affirmed Banco Monex, S.A., Institucion de Banca
Multiple, Monex Grupo Financiero's (Banco Monex) Long- and
Short-Term Foreign and Local Currency Issuer Default Ratings (IDR)
at 'BB+' and 'B', respectively, Viability Rating (VR) at 'bb+', and
its Government Support Rating (GSR) at 'no support' (ns). The
Rating Outlooks for the Long-Term IDRs are Stable.
Fitch also has affirmed the Long- and Short-Term National Scale
ratings of Banco Monex, Monex Casa de Bolsa, S.A. de C.V., Monex
Grupo Financiero (Monex CB) and Monex, S.A.P.I. de C.V. (Monex
SAPI) at 'AA-(mex)'/'F1+(mex)', respectively. The Rating Outlooks
for the Long-Term National ratings are Positive.
The Positive Outlook on Banco Monex's Long-Term National Rating
reflects Fitch's expectation that the bank will continue to
strengthen its Total Operating Income (TOI) base and capitalization
metrics, aided by strong and recurrent profitability.
Key Rating Drivers
Intrinsic Creditworthiness: Banco Monex's IDRs and National scale
ratings are driven by its 'bb+' VR. The bank's VR reflects its
credit profile, underpinned by its strong market position in FX
trading. This business model has proven beneficial during periods
of volatility and economic uncertainty, resulting in more resilient
financial performance against potential operating environment (OE)
risks compared to traditional commercial banks.
Good Business Profile: The ratings are supported by Banco Monex's
longstanding strong position in foreign exchange (FX) wholesale
trading on behalf of customers in the spot and futures market,
which has resulted in recurrent earnings generation across the
economic cycle. As of the first half of 2024 (1H24), Banco Monex
was the fourth largest bank with a market share of 10.1% in FX
trading revenues, according to the local regulator, and reported a
TOI of USD277.5 million (2020-2023 average: USD415.2 million). This
performance surpasses that of some direct FX banks peers and most
mid-sized banks in the country. Banco Monex's well managed FX
business balances its moderate market share in loans and deposits
within the industry.
Riskier Profile than Largest Peers: Fitch's assessment of Banco
Monex's risk appetite is 'bb' and reflects its business model,
which is more exposed to market conditions.
Fitch also notes that Banco Monex's loan portfolio has higher
concentrations by region, sector, and individual borrower compared
to the largest traditional banks. Additionally, the loan growth is
volatile, and some of the largest borrowers are unsecured. This
volatility is partially explained by the significant portion of
loans that are denominated in foreign currency.
Steady Asset Quality: Fitch anticipates the bank will maintain good
credit quality in its securities investments and controlled
impaired loans ratios, leading to an asset quality score upgrade to
'bb+' from 'bb'. The majority of Banco Monex's earning assets
consist of non-loan exposures, a large proportion of which are
trading assets at fair value with good credit quality that
represented 48.5% of total assets at 1H24.
Gross loans remained a moderate share of assets (15.9%) and have
performed well. This is reflected in a controlled stage 3 loans to
gross loans ratio consistently below 2% since 2020. This ratio
compares favorably to those reported by its direct FX peers and
local mid-sized banks. Fitch believes the bank's strong earnings
capacity enables it to absorb credit risk from the loan portfolio.
As of the same date, loan loss allowances comfortably covered 161%
of stage 3 loans.
Strong Profitability: Banco Monex's market-leading position
underpins its good track record of robust profitability, which
offset its less diversified business model. The bank's operating
profit-to-risk-weighted assets (RWA) ratio slightly decreased to
5.4% at 1H24 from 6.0% in YE23, but above the four-year 4.5%
average.
Fitch anticipates a weakening economic environment in 2024 but
believes the bank will maintain strong profitability metrics,
similar to those recently reported. This expectation is due to the
bank's business model, which typically benefits from market
volatility, and the support of still high interest rates for its
interest margins. Consequently, Fitch has revised its earnings and
profitability assessment to 'bb+' from 'bb'.
Adequate Capitalization: Banco Monex's capitalization benefits from
consistent internal capital generation. As of 1H24, the CET1 ratio
decreased to 16.0% from 18.2% in YE23. The ratio is below some of
Banco Monex's direct FX peers, but similar to other rated banks in
the region. Net income partially offset capital distribution
(MXN930 million), which drove the capital decrease. Fitch expects
Banco Monex to continue prudently managing its capital ratios,
which reflects the bank's strong internal capital generation and
low-to-moderate RWA growth.
Strong Liquidity: Fitch continues to view the bank's funding and
liquidity profile as a financial factor strength. The bank's
funding structure heavily relies on repos, which constitute 67.4%
of total funding. Depositor concentration is moderate, with the top
20 depositors representing 11.7% of total deposits. Strong
liquidity is evidenced by liquidity coverage and net stable funding
ratios consistently above regulatory minimums. Fitch expects the
bank's loans-to-deposits ratio to remain stable, between 60%-70% in
2024, as the loan portfolio is primarily funded by customer
deposits, providing also a degree of funding stability.
Rating Sensitivities
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
Banco Monex - VR, IDR and National Ratings
- A sustained deterioration of the bank's operating profit to RWA
ratio consistently below 2.5% and a CET1 to RWA ratio consistently
below 14%, in conjunction with a weakened business profile as
reflected by a reduced market position in the FX trading market;
- A negative rating action on the sovereign or a weaker OE would
result in a similar action on Banco Monex's IDRs and VR given its
less diversified business profile.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
- The Positive Outlook on Banco Monex's LT national ratings could
materialize and upgrade the rating if the bank's TOI continue
increasing significantly and close the gap compared to higher rated
peers, while maintains its CET1 to RWAs ratio above 18% and high
earnings and profitability metric. Asset quality and funding and
liquidity profiles must also remain stable.
- An upgrade of Banco Monex's international ratings is unlikely in
the foreseeable future as these are already at a relatively high
level for its moderate business model and scale. Over the medium
term, an upgrade would depend on greater business and risk
diversification, as well as a marked improvement of its gross loan
and customer deposit market shares within the Mexican financial
system.
Banco Monex's GSR is 'ns' as there is no reasonable assumption that
such support will be available since is not considered a domestic
systemically important bank (D-SIB), has low market share and
interconnectedness within the financial system when compared to
major Mexican banks. As of 1H24, Banco Monex deposits represented
0.8% of the Mexican banking system's deposits.
There is no downside potential for the GSR; however, upside
potential is limited and can only occur over time with a material
growth of the bank's systemic importance.
SUBSIDIARIES & AFFILIATES: KEY RATING DRIVERS
Monex SAPI's National Ratings
Holdco Ratings Equalized with Banco Monex: Monex SAPI's national
scale ratings are equalized with those of its main operating
subsidiary, Banco Monex. Fitch believes Monex SAPI's failure risk
is substantially the same as Banco Monex, as Monex SAPI's default
risk is linked to dividend flows from subsidiaries, and the
entity's investment valuation. Monex SAPI's ratings are strongly
supported by its low double leverage, which is below 120%. As of
1H24, Monex SAPI's double leverage ratio (investment in
subsidiaries to tangible equity) was 96.8%. Fitch believes the low
double leverage ratio, prudent liquidity management, and the common
jurisdiction of the BHC and its main operating subsidiary support
this equalization.
Monex CB's National Ratings
Ratings at the Same Level of the Banks': Monex CB's national scale
ratings are aligned with Banco Monex's ratings. Fitch considers the
legal commitment of the holding company, Grupo Financiero Monex,
S.A. de C.V., y Subsidiarias (Monex GF), to provide support to its
operating subsidiaries and that any support will come from the
bank, that it is the most relevant subsidiary in terms of revenues
and risks. Fitch also considers, the perception of the relevant
strategic role Monex CB plays in the commercial strategy and
operations of the holding company.
SUBSIDIARIES AND AFFILIATES: RATING SENSITIVITIES
Monex SAPI: Rating Sensitivities
Factors That Could, Individually Or Collectively, Lead To Negative
Rating Action/Downgrade
- The National Ratings would remain at the same level as Banco
Monex and would move in tandem with any rating actions on its main
operating subsidiary.
- A significant and sustained increase of Monex SAPI's double
leverage ratio above 120% would lead to a differentiation of one
notch with respect to the National Scale ratings of Banco Monex.
Factors That Could, Individually Or Collectively, Lead To Positive
Rating Action/Upgrade
- Any positive movement in Banco Monex's National Ratings.
Monex CB: Rating Sensitivities
- Monex CB's National Ratings would mirror any changes in Banco
Monex's National Ratings. Additionally, a change in Fitch's
perception of the entity's lower strategic importance for Banco
Monex and the controlling group could lead to a negative rating
action/downgrade.
Summary of Financial Adjustments
Banco Monex, Monex SAPI and Monex CB: Fitch classified pre-paid
expenses and other deferred assets as intangibles and deducted them
from total equity due to their low loss absorption capacity under
stress.
Sources of Information
Financial figures are in accordance to the Comision Nacional
Bancaria y de Valores criteria. Figures from 2022, 2023 and 2024
include recent accounting changes in the process to converge to
International Financial Reporting Standards. Prior years did not
include these changes and Fitch believes they are not directly
comparable.
Public Ratings with Credit Linkage to other ratings
Monex CB: Monex CB's ratings and Outlook are aligned with those of
Banco Monex due to Monex GF's legal obligation to provide support
to its subsidiaries.
Monex SAPI: Monex's national ratings are aligned with those of its
main operating subsidiary, Banco Monex.
ESG Considerations
The highest level of ESG credit relevance is a score of '3', unless
otherwise disclosed in this section. A score of '3' means ESG
issues are credit-neutral or have only a minimal credit impact on
the entity, either due to their nature or the way in which they are
being managed by the entity. Fitch's ESG Relevance Scores are not
inputs in the rating process; they are an observation on the
relevance and materiality of ESG factors in the rating decision.
Entity/Debt Rating Prior
----------- ------ -----
Banco Monex, S.A.,
Institucion de
Banca Multiple,
Monex Grupo
Financiero LT IDR BB+ Affirmed BB+
ST IDR B Affirmed B
LC LT IDR BB+ Affirmed BB+
LC ST IDR B Affirmed B
Natl LT AA-(mex)Affirmed AA-(mex)
Natl ST F1+(mex)Affirmed F1+(mex)
Viability bb+ Affirmed bb+
Government Support ns Affirmed ns
Monex Casa de
Bolsa, S.A. de
C.V., Monex Grupo
Financiero Natl LT AA-(mex)Affirmed AA-(mex)
Natl ST F1+(mex)Affirmed F1+(mex)
Monex Sociedad
Anonima Promotora
de Inversion de
Capital Variable Natl LT AA-(mex)Affirmed AA-(mex)
Natl ST F1+(mex)Affirmed F1+(mex)
===============
X X X X X X X X
===============
LATAM: BID Invest Launches "Enlaces" to Promote Sustainable Finance
-------------------------------------------------------------------
Dominican Today reports that BID Invest announced the launch of
"Enlaces," a regional dialogue network aimed at promoting
sustainable finance initiatives across Latin America and the
Caribbean (LAC). The network seeks to unite efforts, foster
synergies, and advance sustainable finance throughout the region,
with participation from both public and private commercial banks
and financial institutions, according to Dominican Today.
The launch took place during the 2nd Latin American Congress on
Sustainable and Inclusive Banking, held on August 26-27 in Buenos
Aires, Argentina, the report notes. The "Enlaces" network aims to
create a collaborative space for financial actors across the region
to share experiences and best practices, facilitate access to
knowledge and training, promote environmental, social, and
governance (ESG) criteria within financial institutions, and
mobilize impact financing. Additionally, it aims to position the
LAC region as a key player in the global sustainable finance
agenda, the report relays.
The network comprises various initiatives, including private and
public-private working groups, green and sustainable finance
protocols, innovation labs, and sustainability committees, the
report discloses. As of now, 10 initiatives representing around
200 financial institutions from different countries have joined
"Enlaces," including:
-- Argentina: Sustainable Finance Protocol
-- Colombia: Green Protocol and Social Protocol (Asobancaria)
-- Ecuador: Sustainable Finance Protocol (Asobanca)
-- El Salvador: Sustainable Banking Committee (Abansa)
-- Guatemala: Sustainable Finance Advisory Council
-- Honduras: Sustainable Banking Program (Ahiba)
-- Mexico: Sustainability Protocol (ABM)
-- Panama: Sustainable Finance Protocol (ABP)
-- Paraguay: Sustainable Finance Working Group
--Dominican Republic: Green Protocol (ABA)
BID Invest serves as the founder and strategic advisor of "Enlaces"
and will provide support throughout the network's formation and
consolidation phases, the report relays. The initiative will focus
on four strategic pillars: environmental and social risk analysis,
green and climate agendas, social agendas, and corporate
governance, the report says.
With the launch of "Enlaces," the region is taking significant
steps towards making sustainable finance a reality, contributing to
responsible and sustainable economic development, the report
discloses. The network also positions LAC as an important player
in the global sustainable finance landscape, the report notes.
BID Invest, a member of the Inter-American Development Bank (IDB)
Group, is a multilateral development bank dedicated to promoting
economic development in its member countries across Latin America
and the Caribbean through the private sector, the report relays.
BID Invest finances sustainable companies and projects to achieve
financial results and maximize economic, social, and environmental
development in the region, the report says. With a portfolio of
$21 billion in assets under management and 394 clients in 25
countries, BID Invest provides innovative financial solutions and
advisory services to meet the needs of its clients across various
sectors, the report notes.
*********
S U B S C R I P T I O N I N F O R M A T I O N
Troubled Company Reporter-Latin America is a daily newsletter
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USA, Marites O. Claro, Joy A. Agravante, Rousel Elaine T.
Fernandez, Julie Anne L. Toledo, Ivy B. Magdadaro, and Peter A.
Chapman, Editors.
Copyright 2024. All rights reserved. ISSN 1529-2746.
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